Unit 10: ABI/Grupo Modelo Class 17 - appliedantitrust.comappliedantitrust.com/.../unit10ma_abi_grupo_modelo_materials.pdf · holding company for Grupo Modelo’s operating subsidiaries,

MERGER ANTITRUST LAW Unit 10: ABI/Grupo Modelo

Class 17

Fall 2018 Georgetown University Law Center Dale Collins

Unit 10 ABI/GRUPO MODELO

Table of Contents

AB Inbev/Grupo Modelo (2013) Anheuser-Busch InBev, Press Release, Anheuser-Busch InBev and Grupo

Modelo to Combine, Next Step in Long and Successful Partnership (June 29, 2012) ................................................................................................ 5

Constellation Brands, News Release, Constellation Brands Inc. to Acquire Remaining 50 Percent Interest in Crown Imports Joint Venture (June 29, 2012) .............................................................................................. 12

U.S. Dept. of Justice, Antitrust Div., News Release, Justice Department Files Antitrust Lawsuit Challenging Anheuser-Busch Inbev’s Proposed Acquisition of Grupo Modelo (Jan. 31, 2013)............................................... 14

Complaint, United States v. Anheuser-Busch InBev SA/NV, No. 1:13-cv-00127 (D.D.C. filed Jan. 31, 2013) ........................................... 17

Constellation Brands, Inc.’s and Crown Imports LlC’s Motion to Intervene As Defendants (Feb. 7, 2013) ....................................................................... 44

Anheuser-Busch InBev, Press Release, Anheuser-Busch InBev and Constellation Brands Announce Revised Agreement for Complete Divestiture of U.S. Business of Grupo Modelo (Feb. 14, 2013) .................................................. 80

Joint Motion to Stay Proceedings (Feb. 20, 2013) ............................................... 87 Order (Feb. 22, 2013) (granting stay through March 19, 2013) ........................... 91 Joint Motion to Extend the Stay (Mar. 15, 2013) ................................................ 93 Order (Mar. 20, 2013) (granting stay through Apr. 9, 2013) ............................... 99 Joint Motion for a Limited Extension of the Stay (Apr. 5, 2013) ...................... 100 Order (Apr. 9, 2013) (granting stay through Apr. 23, 2013).............................. 106 U.S. Dept. of Justice, Antitrust Div., News Release, Justice Department

Reaches Settlement with Anheuser-Busch Inbev and Grupo Modelo in Beer Case (Apr. 19, 2013) ....................................................................... 107

Stipulation and [Proposed] Order (April 19, 2013) ........................................... 111 Proposed Final Judgment (April 19, 2013) ................................................. 132 Competitive Impact Statement (April 19, 2013) ......................................... 161 United States’ Explanation of Consent Decree Procedures

(April 19, 2013) .................................................................................... 187 Anheuser-Busch InBev, Press Release, Anheuser-Busch InBev Completes

Combination with Grupo Modelo (June 4, 2013) ........................................ 190 Constellation Brands, News Release, Constellation Brands Completes

Acquisition of Grupo Modelo’s U.S. Beer Business (June 7, 2013) ........... 194 Unopposed Motion to Approve the Appointment of William E. Berlin as

Monitoring Trustee (June 21, 2013) ............................................................ 196 Order (June 26, 2013) (approving appointment of trustee) ................................ 200 Plaintiff United States’s Response to Public Comments (Sept. 13, 2013) ......... 201

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Unit 10 ABI/GRUPO MODELO

Plaintiff United States of America’s Motion and Memorandum for Entry of the Proposed Final Judgment (Sept. 25, 2013) ........................................ 229

Certificate of Compliance with Provisions of the Antitrust Procedures and Penalties Act (Sept. 25, 2013) ..................................................................... 235

Final Judgment (Oct. 24, 2013) ......................................................................... 238

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United States v. AB Inbev

4

Brussels and Mexico City, 29 June 2012 – 1 / 7

Anheuser-Busch InBev and Grupo Modelo to Combine, Next Step in Long

and Successful Partnership

Corona to join Budweiser as a Global Flagship Brand

Grupo Modelo Holds Leadership Position in Mexico, a Highly Attractive Market

Grupo Modelo’s Name and Headquarters in Mexico City to Remain

Combination Expected to Yield Annual Synergies of at Least USD 600 Million

Grupo Modelo to Sell its 50% Stake in Crown Imports LLC to Constellation Brands

Anheuser-Busch InBev (Euronext: ABI)(NYSE: BUD) and Grupo Modelo, S.A.B. de C.V. (BMV:

GMODELOC) today announced that they have entered into an agreement under which

Anheuser-Busch InBev will acquire the remaining stake in Grupo Modelo that it does not

already own for USD 9.15 per share in cash in a transaction valued at USD 20.1 billion or

MXN 278.6 billion1. The combination will be completed through a series of steps that will

simplify Grupo Modelo’s corporate structure, followed by an all-cash tender offer by AB InBev

for all outstanding Grupo Modelo shares. The tender price represents a premium of

approximately 30% to the closing price of Grupo Modelo series C shares on June 22, 2012.

The agreement is a natural next step given AB InBev’s existing economic stake of more than

50% in Grupo Modelo and the successful long-term partnership between the two companies.

The combined company would lead the global beer industry with roughly 400 million

hectoliters of beer volume annually and 2012 estimated revenues of USD 47 billion. Its

operations would span 24 countries with enhanced opportunities for 150,000 employees

across the globe.

“Grupo Modelo has been one of our most important partners for more than 20 years and we

are very pleased to evolve our long and successful relationship into this combination,” said

Carlos Brito, Chief Executive Officer of Anheuser-Busch InBev. “There is tremendous

opportunity from combining two leading brand portfolios and further expanding Grupo

Modelo’s brands worldwide through AB InBev’s extensive global distribution network. Our

admiration for Grupo Modelo’s business and brands has only increased with time and we look

forward to joining our historic and world-class breweries. We also recognize and appreciate

the critical role that Grupo Modelo’s shareholders and management have played in the

1 Converted at an exchange rate of 13.86 MXN/USD based on Bloomberg as of Friday, June 22, 2012.

The enclosed information constitutes regulated information as defined in the Belgian Royal Decree of 14 November 2007 regarding the duties of issuers of financial instruments which have been admitted for trading on a regulated market.

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company’s longstanding success within Mexico and internationally and look forward to their

continued contributions.”

“We have worked together with Anheuser-Busch InBev in a productive decades-long

partnership, and it is time to cement our relationship through this merger,” said Carlos

Fernández, Chairman and Chief Executive Officer of Grupo Modelo. “Together we will be the

leading global brewer with top brands around the world and positions in some of the fastest

growing countries. This is an exciting transaction that will bring our brands and proud

heritage to even more consumers internationally while offering an increasing number of AB

InBev’s brands in Mexico. Grupo Modelo’s Board believes that this combination will deliver

significant benefits for all stakeholders.”

Combination of Globally Recognized Brands

The combination would create a significant growth opportunity worldwide from combining two

leading brand portfolios and distribution networks. It would bring together five of the top six

and seven of the top ten most valuable beer brands in the world, each with distinct brand

imagery and consumer positioning. The combined company would unite Grupo Modelo’s

number one position in the world’s fourth largest profit pool with AB InBev’s leading global

position, further increasing AB InBev’s exposure to fast-growing developing markets.

Building on its rich tradition and unique brand positioning, Corona would become a global

flagship brand alongside Budweiser and join global brands Stella Artois and Beck’s. There will

be meaningful opportunities to grow Corona globally outside the U.S. and Mexico, given AB

InBev’s established platform for distribution worldwide and the resources at its disposal as

the leading global brewer.

The combination would bring together significant industry expertise and complementary

geographic experience. Grupo Modelo has successfully imported and distributed Budweiser

and Bud Light in Mexico for more than twenty years and has a strong track record as a leader

in Mexico. The company has also developed Corona into the leading import beer in 38

countries around the world and successfully markets the brand in more than 180 countries.

Grupo Modelo’s Name and Headquarters in Mexico City to Remain

Grupo Modelo’s name, identity, heritage and headquarters in Mexico City will be maintained,

and the company will continue to have a local board. Carlos Fernández, María Asunción

Aramburuzabala and Valentín Díez Morodo will continue to play an important role on Grupo

Modelo’s Board of Directors and AB InBev will seek the board’s insights and expertise. Two

Grupo Modelo board members will join AB InBev’s Board of Directors, and they have

committed, only upon tender of their shares, to invest USD 1.5 billion of their proceeds from

the tender offer into shares of AB InBev to be delivered within five years via a deferred share

instrument.

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Consumers in Mexico would benefit from the increased choice offered by AB InBev’s

extensive portfolio. AB InBev will ensure that the integrity and quality of Grupo Modelo’s

brands are preserved, respecting the great traditions that AB InBev has experienced

firsthand over the years.

AB InBev believes that Mexico is an attractive market in which to invest with solid

macroeconomic fundamentals and a favorable demographic profile. Mexico is the second

largest economy in Latin America and has one of the highest per capita GDPs within

developing markets. Beer is the largest alcohol beverage subcategory in the country with

70% of value share, representing about USD 22 billion in retail sales in 2011. A growing

middle class, rising urbanization rates and increased consumer spending due to higher

disposable incomes are expected to drive category growth. Mexico’s economy recorded 4.6%

GDP growth in the first quarter of 2012, and strong performance is expected to continue in

the long term, driving private consumption.

Key Transaction Terms

The existing partnership between AB InBev and Grupo Modelo, which dates back to 1993, is

being enhanced through a series of transactions that will simplify and streamline the

corporate structure of Grupo Modelo. As part of these transactions, Diblo, S.A. de C.V., the

holding company for Grupo Modelo’s operating subsidiaries, and Dirección de Fábricas

(DIFA), S.A. de C.V., a leading glass bottle manufacturer in Mexico with output largely

dedicated to Grupo Modelo, will merge into parent Grupo Modelo for newly issued Grupo

Modelo shares. Immediately after the mergers of Diblo and DIFA, AB InBev will commence an

all-cash tender offer for all of the outstanding shares of Grupo Modelo that it will not own at

that time for a total consideration of USD 20.1 billion or USD 9.15 per share. Both

companies’ Boards of Directors have approved the transaction.

The tender price of USD 9.15 per share represents a premium of approximately 30%2 to MXN

97.95, the closing price of Grupo Modelo series C shares on June 22, 2012. The total

enterprise value is estimated to be approximately USD 32.2 billion, composed of the

consideration in the tender offer, the value of AB InBev’s existing stakes in Grupo Modelo and

Diblo as well as cash balances and minority interests. (Note: Please visit

www.globalbeerleader.com for a detailed analysis of EBITDA multiple calculations for this

transaction.)

AB InBev has fully committed financing for the purchase of Grupo Modelo’s outstanding

shares. The company has added USD 14 billion of additional bank facilities to existing

liquidity through a new facility agreement which provides for an USD 8 billion three-year

term facility and a USD 6 billion term facility with a maximum maturity of two years from the

funding date. AB InBev now has total liquidity, between cash and long-term committed

facilities, in excess of USD 24 billion. AB InBev expects to be below its targeted net debt to

normalized EBITDA ratio of 2.0x during the course of 2014.

2 Converted at the exchange rate as of Friday, June 22, 2012.

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http://www.globalbeerleader.com/


Crown Imports LLC to Remain U.S. Importer

In a related transaction announced today, Grupo Modelo will sell its existing 50% stake in

Crown Imports, the joint venture that imports and markets Grupo Modelo’s brands in the

U.S., to Constellation Brands for USD 1.85 billion, giving Constellation Brands 100%

ownership and control. As a result, Grupo Modelo’s brands will continue to be imported,

marketed and distributed independently in the U.S. through Crown Imports on similar

economic terms it receives today, while AB InBev will ensure the continuity of supply, quality

of products and ability to introduce innovations. Crown Imports will continue to manage all

aspects of the business, including making marketing, distribution and pricing decisions.

Combination Offers Significant Synergies and Opportunities for Sharing Best

Practices

The companies believe that the synergy potential from the combination would include the

expansion of Corona, economies of scale through combined purchasing opportunities, and the

sharing of best practices around the world. In addition, AB InBev has a strong track record of

successfully completing combinations, integrating businesses and delivering on its financial

commitments. The combination is expected to yield annual synergies of at least USD 600

million.

Both companies are leaders in corporate citizenship with a strong commitment to giving back

to the communities in which they operate. Together, the combined company would work to

mutually enhance their corporate responsibility initiatives for their employees, the

environment and consumers. For example, Grupo Modelo’s water usage at its breweries is

best in class, and AB InBev intends to share these practices across its operations to continue

to improve water management at its breweries around the world.

AB InBev looks to learn from the state-of-the-art technology used in Grupo Modelo’s newest

breweries, which are among the most modern and efficient worldwide.

Grupo Modelo’s employees would also benefit from global career development opportunities

as well as contribute their skills and experience to the combined organization’s continued

growth.

The transaction is subject to regulatory approvals in the U.S., Mexico and other countries,

the approval of the shareholders of Grupo Modelo in a general meeting and other customary

closing conditions. The companies will work proactively with regulators to move through the

review process efficiently. It is expected to close during the first quarter of 2013.

Investor and Analyst Webcast Details

There will be a webcast for the investment community on Friday, June 29, 2012 at 7:30 a.m.

Mexico City Time (CDT) / 8:30 a.m. EDT / 2:30 p.m. CET.

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To register for the webcast click here http://www.media-server.com/m/p/m8jy4yvi.

A replay of the webcast will be also be archived on the investor relations sections of www.ab-

inbev.com and www.gmodelo.mx.

Global Media Conference Call Details

There will be a call for media on Friday, June 29, 2012 at 8:45 a.m. Mexico City Time (CDT) /

9:45 a.m. EDT / 3:45 p.m. CET.

The call can be accessed by dialing 1-866-203-3436 in the U.S., 0-1-800-563-0645 in

Mexico, and +1-617-213-8849 from international locations and referencing conference code

23945311.

Dutch and French versions of this press release will be posted on www.ab-inbev.com and a

Spanish version will be posted on www.gmodelo.mx.

Transaction Website www.globalbeerleader.com

For more information, including a video interview with Carlos Brito, Chief Executive Officer of

AB InBev, and Carlos Fernández, Chairman and Chief Executive Officer of Grupo Modelo,

please go to www.globalbeerleader.com in English and www.liderglobalencerveza.com in

Spanish. High resolution video and images for broadcast and print media can be downloaded

from the website.

About Anheuser-Busch InBev Anheuser-Busch InBev is a publicly traded company (Euronext: ABI) based in Leuven, Belgium, with an American Depositary Receipt secondary listing on the New York Stock Exchange (NYSE: BUD). It is the leading global brewer and one of the world's top five consumer products companies. Beer, the original social network, has been bringing people together for thousands of years and our portfolio of well over 200 beer brands continues to forge strong connections with consumers. We invest the majority of our brand-building resources on our Focus Brands - those with the greatest growth potential such as global brands Budweiser®, Stella Artois® and Beck’s®, alongside Leffe®, Hoegaarden®, Bud Light®, Skol®, Brahma®, Antarctica®, Quilmes®, Michelob Ultra®, Harbin®, Sedrin®, Klinskoye®, Sibirskaya Korona®, Chernigivske®, Hasseröder® and Jupiler®. In addition, the company owns a 50

percent equity interest in the operating subsidiary of Grupo Modelo, Mexico's leading brewer and owner of the global Corona® brand. AB InBev’s dedication to heritage and quality originates from the Den Hoorn brewery in Leuven, Belgium dating back to 1366 and the pioneering spirit of the Anheuser & Co brewery, with origins in St. Louis, USA since 1852. Geographically diversified with a balanced exposure to developed and developing markets, AB InBev leverages the collective strengths of its approximately 116,000 employees based in 23 countries worldwide. In 2011, AB InBev realized 39.0 billion USD revenue. The company strives to be the Best Beer Company in a Better World. For more information, please visit: www.ab-inbev.com.

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About Grupo Modelo Grupo Modelo, founded in 1925, is the leader in Mexico in beer production, distribution and marketing. It has a total annual installed capacity of 70 million hectoliters. Currently, it brews and distributes 13 brands, including Corona Extra, the number one Mexican beer sold in the world, Modelo Especial, Victoria, Pacífico and Negra Modelo. It exports six brands and is present in more than 180 countries. It is the importer of Anheuser-Busch InBev's products in Mexico, including Budweiser, Bud Light and O'Doul's. It also imports the Chinese Tsingtao brand and the Danish beer Carlsberg. Through a strategic alliance with Nestlé Waters, it produces and distributes in Mexico the bottled water brands Sta. María and Nestlé Pureza Vital, among others. Grupo Modelo trades in the Mexican Stock Exchange since 1994 with the ticker symbol GMODELOC. It also quotes as an ADR under the ticker GPMCY in the OTC markets and in Latibex in Spain as XGMD.

Anheuser-Busch InBev Contacts:

Media Investors

Marianne Amssoms

Tel: +1-212-573-9281

E-mail: [email protected]

Graham Staley

Tel: +1-212-573-4365


Karen Couck

Tel: +32-16-27-69-65


Thelke Gerdes

Tel: +32-16-27-68-88


Laura Vallis

Tel: +1-212-573-9283


Christina Caspersen

Tel: +1-212-573-4376


Steve Lipin / Stan Neve, Brunswick

Group

Tel: +1-212-333-3810

Grupo Modelo Contacts:

Media Investors

Jennifer Shelley

Tel: +52 (55) 2266 0015

Email: [email protected]

Begoña Orgambide García

Tel: +52 (55) 1103 5740

Email: [email protected]

Forward Looking Statement:

This release contains certain forward-looking statements reflecting the current views of the

management of AB InBev with respect to, among other things, the proposed transaction

described herein as well as AB InBev’s strategic objectives, business prospects, future

financial condition, budgets, projected levels of production, projected costs and projected

levels of revenues and profits, and the synergies it is able to achieve. These statements

involve risks and uncertainties. The ability of AB InBev to achieve these objectives and

targets or to consummate the proposed transaction is dependent on many factors some of

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mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


which may be outside of management’s control. In some cases, words such as “believe”,

“intend”, “expect”, “anticipate”, “plan”, “target”, “will” and similar expressions to identify

forward-looking statements are used. All statements other than statements of historical facts

are forward-looking statements. You should not place undue reliance on these forward-

looking statements. By their nature, forward-looking statements involve risk and uncertainty

because they reflect AB InBev’s current expectations and assumptions as to future events

and circumstances that may not prove accurate. The actual results could differ materially

from those anticipated in the forward-looking statements for many reasons including the

risks described under Item 3.D of AB InBev’s annual report on Form 20-F filed with the US

Securities and Exchange Commission on 13 April 2012, as well as risks associated with the

proposed transaction, including uncertainty as whether AB InBev will be able to consummate

the transaction on the terms described in this document or in the definitive agreements, the

ability to obtain necessary governmental approvals, the availability of financing for the

transaction and the ability to consummate the financing on the currently anticipated terms,

the ability to realize the anticipated benefits of transaction, including as a result of a delay in

completing the transaction or difficulty in integrating the businesses of the companies

involved, and the amount and timing of any costs savings and operating synergies. AB InBev

cannot assure you that the proposed transaction or the future results, level of activity,

performance or achievements of AB InBev will meet the expectations reflected in the

forward-looking statements. Moreover, neither AB InBev nor any other person assumes

responsibility for the accuracy or completeness of the forward-looking statements. Unless AB

InBev is required by law to update these statements, AB InBev will not necessarily update

any of these statements after the date hereof, either to confirm the actual results or to report

a change in its expectations.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any

securities, nor shall there be any offer, solicitation or sale of securities in any jurisdiction in

which such offer, solicitation or sale would be unlawful prior to the registration or

qualification under the securities laws of such jurisdiction.

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Home » Constellation Brands Inc. to Acquire Remaining 50 Percent Interest in Crown Imports Joint Venture Print Email

--Leading U.S. import beer business to become wholly owned--VICTOR, N.Y., June 29, 2012 - Constellation Brands, Inc., (NYSE:STZ), which currently owns 50 percent of Crown Imports LLC (Crown), a 50-50 joint venture with Grupo Modelo S.A.B. de C.V. (Modelo), announced

today that it has signed a definitive agreement with Anheuser-Busch InBev SA/NV (AB InBev) to purchase the remaining 50 percent interest in Crown as AB InBev completes its proposed acquisition of Modelo. The purchase price is $1.85 billion and represents 50 percent of a multiple of approximately 8.5 times Crown's EBIT. The transaction, which is subject to regulatory approval, is expected to close during the first quarter of calendar 2013.

"This is a significant milestone in the history of Constellation Brands," said Rob Sands, president and chief executive officer, Constellation Brands. "We have been the importer, marketer and seller of the Modelo brands in the U.S. for almost two decades. During this time, the Crown team has successfully built the Modelo portfolio into an enviable position of leadership and growth. Our full ownership of this significant beer business provides an additional strategic lever for driving overall profitable organic growth. We expect this transaction to dramatically enhance the financial profile of our company and it will solidify Constellation Brands' position as the largest multi-category supplier of beverage alcohol and the third largest total beverage alcohol company in the U.S."

Crown's portfolio of brands includes Corona Extra, Corona Light, Modelo Especial, Pacifico, Negra Modelo and Victoria. Corona Extra is the best-selling imported beer and the sixth best-selling beer overall in the industry. Corona Light is the leading imported light beer and Modelo Especial is the third largest and one of the fastest growing major imported beer brands.

"Crown is currently experiencing significant marketplace momentum driven by new products as well as innovation in advertising, marketing, promotions and packaging," Sands added.

"This agreement provides certainty and continuity for Crown and its wholesaler partners," said Bill Hackett, president, Crown Imports. "We look forward to continuing to work with our wholesaler network to further grow the Modelo portfolio of brands across the U.S. marketplace."

Under the terms of the transaction, Constellation Brands and Crown will have complete, independent control of distribution, marketing and pricing for all Modelo brands in the U.S., while AB InBev will ensure continuity of supply, quality of products and the ability to introduce innovations. The new importation agreement will be perpetual and provides AB InBev with the right, but not the obligation, to exercise a call option every 10 years, subject to regulatory approval, at a multiple of 13 times Crown's EBIT from the Modelo brands.

Financial HighlightsConstellation Brands has fully committed bridge financing in place to complete the acquisition. Permanent financing is expected to consist of a combination of revolver borrowings, a new term loan under the company's current senior credit facility and the issuance of senior notes.

"Upon closing, this transaction is expected to increase Constellation's debt to comparable basis EBITDA leverage to the mid-four times range when factoring in a full-year of the additional Crown EBITDA," said Bob Ryder, chief financial officer, Constellation Brands. "Due to the anticipated strong free cash flow generation of Constellation Brands, this leverage ratio should decrease to our targeted range of three to four times within the first 12 months after the close of the transaction. We plan to suspend our current share repurchase program. We currently have approximately $700 million remaining under our one billion share repurchase authorization."

During Constellation's fiscal 2012, Crown sold 164 million cases and generated $2.47 billion of net sales and $431 million of operating income. The company currently accounts for its 50 percent interest in Crown under the equity method and recognized $215 million of equity earnings from Crown in fiscal 2012. Upon completion of the transaction, the company will begin consolidating the full financial results of Crown. As a result, this transaction is expected to be significantly accretive to Constellation's on-going diluted EPS and free cash flow results.

Constellation Brands will discuss this transaction on its first quarter fiscal 2013 earnings conference call scheduled for today at 10:30 a.m. (eastern.) The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call.

About Constellation Brands, Inc.

As the world's leader in premium wine, Constellation Brands, Inc. (NYSE: STZ and STZ.B) is a S&P 500 Index and a Fortune 1000® company with 4,400 employees, sales in 125 countries and operations in 40 facilities worldwide. The company manages a broad portfolio of more than 100 wines, beers and spirits that include: Robert Mondavi, Clos du Bois, Kim Crawford, Inniskillin, Franciscan Estate, Ruffino, Simi, Estancia, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka. Learn more at www.cbrands.com.

Forward-Looking Statements

This news release contains forward-looking statements. The words "expect," "anticipate," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Those statements may relate to Constellation Brands' business strategy, future operations, prospects, plans and objectives of management, as well as information concerning expected actions of third parties. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. All forward-looking statements speak only as of the date of this news release. Constellation Brands undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Constellation Brands Inc. to Acquire Remaining 50 Percent Interest in Crown Imports Joint Venture

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The forward-looking statements are based on management's current expectations and, unless otherwise noted, do not take into account the impact of any future acquisition, merger or any other business combination, divestiture, restructuring or other strategic business realignments, financing or share repurchase that may be completed after the date of this release. The forward-looking statements should not be construed in any manner as a guarantee that such results will in fact occur. There can be no assurance that the transaction between Constellation Brands and Anheuser-Busch InBev SA/NV regarding the purchase by Constellation Brands of the 50% portion of Crown Imports LLC which it does not already own will occur or will occur on the timetable contemplated hereby.

In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the company contained in this news release are subject to a number of risks and uncertainties, including:

• completion of the announced transaction regarding the purchase by Constellation Brands of the 50% interest in Crown Imports LLC which it does not already own, and the accuracy of all projections which are expected to impact the company's financial profile;

• the exact elements of permanent financing for the acquisition of the remaining interest in Crown Imports LLC will depend upon market conditions;

• the exact duration of the share repurchase implementation and the amount and timing of any share repurchases;

• ability to achieve expected and target debt leverage ratios due to different financial results from those anticipated and the timeframe in which the target debt leverage ratio will be achieved will depend upon actual financial performance;

• increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for the company's products and/or result in lower than expected sales or higher than expected expenses;

• general economic, geo-political and regulatory conditions, prolonged downturn in the economic markets in the U.S. and in the company's major markets outside of the U.S., continuing instability in world financial markets, or unanticipated environmental liabilities and costs; and

• other factors and uncertainties disclosed in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended Feb. 29, 2012, which could cause actual future performance to differ from current expectations.

CONTACTS

Media

Angela Howland Blackwell - 585-678-7141Cheryl Gossin - 585-678-7191

Investor Relations

Patty Yahn-Urlaub - 585-678-7483Bob Czudak - 585-678-7170

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FOR IMMEDIATE RELEASE AT THURSDAY, JANUARY 31, 2013 (202) 514-2007 WWW.JUSTICE.GOV TTY (866) 544-5309

JUSTICE DEPARTMENT FILES ANTITRUST LAWSUIT CHALLENGING ANHEUSER-BUSCH INBEV’S PROPOSED ACQUISITION OF GRUPO MODELO

Merger Would Result in U.S. Consumers Paying More for Beer, Less Innovation;

Lawsuit Seeks to Maintain Competition in the Beer Industry Nationwide

WASHINGTON – The Department of Justice filed a civil antitrust lawsuit today challenging Anheuser-Busch InBev’s (ABI) proposed acquisition of total ownership and control of Grupo Modelo. The department said that the $20.1 billion transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States, resulting in consumers paying more for beer and having fewer new products from which to choose.

Americans spent at least $80 billion on beer last year. According to the department, ABI’s Bud Light is the best selling beer in the United States and Modelo’s Corona Extra is the best-selling import. Because of the size of the beer market in the United States, even a small increase in the price of beer could result in billions of dollars of harm to American consumers, the department said. The department’s lawsuit, filed in the U.S. District Court for the District of Columbia, seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate. “The department is taking this action to stop a merger between major beer brewers because it would result in less competition and higher beer prices for American consumers,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “If ABI fully owned and controlled Modelo, ABI would be able to increase beer prices to American consumers. This lawsuit seeks to prevent ABI from eliminating Modelo as an important competitive force in the beer industry.” ABI and Modelo–the largest and third largest beer firms, respectively–together control about 46 percent of annual sales in the United States. MillerCoors, the second largest beer firm, accounts for about 29 percent of nationwide sales. Beer is generally grouped into four distinct segments by industry participants–sub-premium, premium, premium plus and high-end. The sub-premium segment includes: Busch (owned by ABI); and Keystone (owned by MillerCoors). The premium segment includes: Bud Light; Coors Light; and MillerLite. The premium plus

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http://www.justice.gov/

segment includes: Michelob (owned by ABI); and Modelo Especial (owned by Modelo). The high-end segment includes: imports such as Corona (owned by Modelo) and Heineken; and a variety of craft beers.

According to the department’s complaint, the U.S. beer market is already highly concentrated, and prices are increased by strategic interactions among the largest brewers, including ABI and MillerCoors. ABI generally acts as the price leader, implementing annual price increases in the sub-premium, premium and premium plus segments of the U.S. beer industry. MillerCoors and other brewers have typically joined the ABI price increases, while Modelo has not. By pricing aggressively, Modelo–through its importer, Crown Imports–puts pressure on ABI to maintain or lower prices, especially in certain parts of the country. As a result, Modelo has become a particularly important competitor in the U.S. market.

The complaint quotes internal company documents demonstrating both ABI’s

determination to maintain its upward price leadership in the U.S. beer industry and Modelo’s present-day position as a significant competitive threat to ABI:

• ABI has implemented a “conduct plan,” whereby ABI hopes to establish “the highest

level of [price] followership” by its large rivals by being as “consistent,” “simple” and “transparent” as possible;

• ABI believes that its conduct plan provides the highest possibility of “sustaining a price increase” and “ensuring competition does not believe they can take share through pricing”;

• By contrast, Modelo’s pricing strategy in the United States is known as the “momentum plan” and aims to narrow the “price gap” between Modelo’s imports and domestic premium beers, such as ABI’s Bud Light, stealing market share from ABI by enticing consumers to “trade up” to Modelo beer; and

• ABI executives acknowledge that Modelo has “put increasing pressure” on ABI competitively, and that Modelo’s strategy is at odds with ABI’s well-established practice of leading prices upward with the expectation that its competitors will follow.

The complaint also discusses ABI’s efforts to target Corona. ABI considered Corona to

be a significant threat, and launched Bud Light Lime in 2008 to compete with Corona. ABI went as far as to mimic Corona’s distinctive clear bottle. Ultimately, instead of trying to compete head-to-head with its own product, Bud Light Lime, ABI is thwarting competition by buying Modelo.

The department alleges that ABI’s acquisition of total ownership and control of Modelo would eliminate the existing competition between ABI and Modelo, further concentrating the beer industry, enhancing ABI’s market power and facilitating coordinated pricing between ABI and the remaining large players. Consumers would, as a result, see higher prices and less innovation.

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The department’s complaint also alleges that ABI and Modelo efforts to remedy the anticompetitive aspects of their transaction are inadequate. The complaint states that ABI has agreed to sell Modelo’s existing 50 percent interest in Crown to its Crown joint venture partner, Constellation. ABI would also enter into an exclusive agreement to supply Constellation with Modelo beer to import into the United States, although ABI can terminate this supply agreement after 10 years and would retain the Modelo brands and its brewing and bottling facilities. “The companies’ attempt to fix this anticompetitive deal through the sale of Modelo’s existing interest in Crown and a temporary supply agreement is not sufficient to prevent consumer harm from ABI’s acquisition of its competitor, Modelo,” said Baer. The complaint states that the combined effect of the proposed acquisition of Modelo and the proposed fix is to eliminate from the marketplace a sophisticated brewing firm with a long history of success and replace it with an importer which will own no brands or brewing facilities and be totally dependent on ABI for its supply of Corona and other Modelo brands. The documents in the case show that as Crown’s CEO wrote to his employees after the acquisition was announced: “our #1 competitor will now be our supplier…it is not currently or will not, going forward, be ‘business as usual.’” The department’s complaint said that not only will competition be harmed by the loss of Modelo as a competitor, but by removing an independent brewer–Modelo–from the market, strategically coordinated pricing will become easier in the future. ABI is a Belgian corporation with its principal place of business in Leuven, Belgium. In 2011, ABI had revenues of approximately $39 billion. ABI currently has a 43 percent voting interest and a 50.35 percent economic interest in Modelo. ABI has stated in its annual reports filed with the Securities and Exchange Commission that it does not have voting or other effective control of Modelo. Through the proposed acquisition, ABI would acquire control of, and the remaining economic interest in Modelo. Modelo is a Mexican corporation with its principal place of business in Mexico City. In 2011, Modelo had revenues of approximately $7 billion.

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA, U.S. Department of Justice Antitrust Division 450 Fifth Street, NW, Suite 7100 Washington, D.C. 20530, Plaintiff, v. ANHEUSER-BUSCH InBEV SA/NV Brouwerijplein 1 Leuven, Belgium 3000 and GRUPO MODELO S.A.B de C.V Javier Barros Sierra No. 555 Piso 3 Col. Zedec, Santa Fe Mexico D.F. C.P. 01210 Defendants.

COMPLAINT

The United States of America, acting under the direction of the Attorney General of the

United States, brings this civil action under the antitrust laws of the United States to enjoin the

proposed acquisition by Anheuser-Busch InBev SA/NV (“ABI”) of the remainder of Grupo

Modelo S.A.B. de C.V. (“Modelo”) that it does not already own, and to obtain equitable and

other relief as appropriate. The United States alleges as follows:

Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 1 of 27

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I. INTRODUCTION

1. Fundamental to free markets is the notion that competition works best and consumers

benefit most when independent firms battle hard to win business from each other. In industries

characterized by a small number of substantial competitors and high barriers to entry, further

consolidation is especially problematic and antithetical to the nation’s antitrust laws. The U.S.

beer industry – which serves tens of millions of consumers at all levels of income – is highly

concentrated with just two firms accounting for approximately 65% of all sales nationwide. The

transaction that is the subject of this Complaint threatens competition by combining the largest

and third-largest brewers of beer sold in the United States. The United States therefore seeks to

enjoin this acquisition and prevent a serious violation of Section 7 of the Clayton Act.

2. Today, Modelo aggressively competes head-to-head with ABI in the United States. That

competition has resulted in lower prices and product innovations that have benefited consumers

across the country. The proposed acquisition would eliminate this competition by further

concentrating the beer industry, enhancing ABI’s market power, and facilitating coordinated

pricing between ABI and the next largest brewer, MillerCoors, LLC. The approximate market

shares of U.S. beer sales, by dollars, are illustrated below:

MILLERCOORS

26%

ANHEUSER‐BUSCH INBEV39%

MODELO7%

HEINEKEN USA INC

6%

Other22%


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3. Defendants’ combined national share actually understates the effect that eliminating

Modelo would have on competition in the beer industry, both because Modelo’s share is

substantially higher in many local areas than its national share, and because of the interdependent

pricing dynamic that already exists between the largest brewers. As the two largest brewers,

ABI and MillerCoors often find it more profitable to follow each other’s prices than to compete

aggressively for market share by cutting price. Among other things, ABI typically initiates

annual price increases in various markets with the expectation that MillerCoors’ prices will

follow. And they frequently do.

4. In contrast, Modelo has resisted ABI-led price hikes. Modelo’s pricing strategy – “The

Momentum Plan” – seeks to narrow the “price gap” between Modelo beers and lower-priced

premium domestic brands, such as Bud and Bud Light. ABI internal documents acknowledge

that Modelo has put “increasing pressure” on ABI by pursuing a competitive strategy directly at

odds with ABI’s well-established practice of leading prices upward.

5. Because Modelo prices have not closely followed ABI’s price increases, ABI and

MillerCoors have been forced to offer lower prices and discounts for their brands to discourage

consumers from “trad[ing] up” to Modelo brands. If ABI were to acquire the remainder of

Modelo, this competitive constraint on ABI’s and MillerCoors’ ability to raise their prices would

be eliminated.

6. The acquisition would also eliminate the substantial head-to-head competition that

currently exists between ABI and Modelo. The loss of this head-to-head competition would

enhance the ability of ABI to unilaterally raise the prices of the brands that it would own post-

acquisition, and diminish ABI’s incentive to innovate with respect to new brands, products, and

packaging.


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7. Accordingly, ABI’s acquisition of the remainder of Modelo would likely substantially

lessen competition and is therefore illegal under Section 7 of the Clayton Act, 15 U.S.C. § 18.

8. For no substantial business reason other than to avoid liability under the antitrust laws,

ABI has entered into an additional transaction contingent on the approval of its acquisition of the

remainder of Modelo. Specifically, ABI has agreed to sell Modelo’s existing 50% interest in

Crown Imports LLC (“Crown”)1 – which currently imports Modelo beer into the United States –

to Crown’s other owner, Constellation Brands, Inc. (“Constellation”). ABI and Constellation

have also negotiated a proposed Amended and Restated Importer Agreement (the “supply

agreement”), giving Constellation the exclusive right to import Modelo beer into the United

States for ten years. Constellation, however, would acquire no Modelo brands or brewing

facilities under this arrangement – it remains simply an importer, required to depend on ABI for

its supply of Modelo-branded beer. At the end of the ten-year period, ABI could unilaterally

terminate its agreement with Constellation, thereby giving ABI full control of all aspects of the

importation, sale, and distribution of Modelo brands in the United States.

9. The sale of Modelo’s 50% interest in Crown to Constellation is designed predominantly

to help ABI win antitrust approval for its acquisition of Modelo, creating a façade of competition

between ABI and its importer. In reality, Defendants’ proposed “remedy” eliminates from the

market Modelo – a particularly aggressive competitor – and replaces it with an entity wholly

dependent on ABI. As Crown’s CEO wrote to his employees after the acquisition was

announced: “our #1 competitor will now be our supplier . . . it is not currently or will not, going

forward, be ‘business as usual.’” The deficiencies of the “remedy” are apparent from the

1 Headquartered in Chicago, Illinois, Crown is a 50/50 joint venture between Modelo and Constellation. Crown sells and markets Modelo’s beers in the United States as the exclusive importer of Modelo beers.


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illustrations of the pre- and post-transaction chains of supply below, demonstrating how the

“remedy” transforms horizontal competition into vertical dependency:

10. Constellation has already shown through its participation in the Crown joint venture that

it does not share Modelo’s incentive to thwart ABI’s price leadership. In fact, Constellation

consistently has urged following ABI’s price leadership. Given that Constellation was inclined

to follow ABI’s price leadership before the acquisition, it is unlikely to reverse course after –

when it would be fully dependent on ABI for its supply of beer, and will effectively be ABI’s

business partner. In addition, Constellation would need to preserve a strong relationship with

ABI to encourage ABI from exercising its option to terminate the agreement after 10 years.

11. For these reasons, as alleged more specifically below, the proposed acquisition, if

consummated, would likely substantially lessen competition in violation of Section 7 of the

Clayton Act. The likely anticompetitive effects of the proposed acquisition would not be


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prevented or remedied by the sale of Modelo’s existing interest in Crown to Constellation and

the supply agreement between ABI and Constellation.

II. JURISDICTION, VENUE, AND INTERSTATE COMMERCE

12. The United States brings this action under Section 15 of the Clayton Act, as amended, 15

U.S.C. § 25, to prevent and restrain Defendants ABI and Modelo from violating Section 7 of the

Clayton Act, as amended, 15 U.S.C. § 18.

13. This Court has subject matter jurisdiction over this action under Section 15 of the Clayton

Act, 15 U.S.C. § 25, and 28 U.S.C. §§ 1331, 1337, and 1345.

14. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C. § 22, and 28 U.S.C.

§ 1391.

15. Defendants are engaged in, and their activities substantially affect, interstate commerce.

ABI and Modelo annually brew several billion dollars worth of beer, which is then advertised

and sold throughout the United States.

16. This Court has personal jurisdiction over each Defendant. Modelo has consented to

personal jurisdiction in this judicial district. ABI is found and transacts business in this District

through its wholly-owned United States subsidiaries, over which it exercises control.

III. THE DEFENDANTS AND THE TRANSACTIONS

17. ABI is a corporation organized and existing under the laws of Belgium, with headquarters

in Leuven, Belgium. ABI is the largest brewer and marketer of beer sold in the United States.

ABI owns and operates 125 breweries worldwide, including 12 in the United States. It owns

more than 200 beer brands, including Bud Light, the number one brand in the United States, and

other popular brands such as Budweiser, Busch, Michelob, Natural Light, Stella Artois, Goose

Island, and Beck’s.


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18. Modelo is a corporation organized and existing under the laws of Mexico, with

headquarters in Mexico City, Mexico. Modelo is the third-largest brewer of beer sold in the

United States. Modelo’s Corona Extra brand is the top-selling import in the United States. Its

other popular brands sold in the United States include Corona Light, Modelo Especial, Negra

Modelo, Victoria, and Pacifico.

19. ABI currently holds a 35.3% direct interest in Modelo, and a 23.3% direct interest in

Modelo’s operating subsidiary Diblo, S.A. de C.V. ABI’s current part-ownership of Modelo

gives ABI certain minority voting rights and the right to appoint nine members of Modelo’s 19-

member Board of Directors. However, as ABI stated in its most recent annual report, ABI does

“not have voting or other effective control of . . . Grupo Modelo.”

20. ABI and Modelo executives agree that there is currently vigorous competition between

the ABI and Modelo brands in the United States. Indeed, firewalls are in place to ensure that the

ABI members of Modelo’s Board do not become privy to information about the pricing,

marketing, or distribution of Modelo brands in the United States.

21. Modelo executives run its day-to-day business, including Modelo’s relationship and

interaction with its U.S. importer, Crown. Modelo owns half of Crown and may exercise an

option at the end of 2013, to acquire in 2016, the half of Crown it does not already own. Today,

Modelo must approve Crown’s general pricing parameters, changes in strategic direction,

borrowing activities, and capital investment above certain thresholds. Modelo also sets the

global strategic themes for the brands it owns. Essentially, Crown is a group of employees who

report to Crown’s owners: Modelo and Constellation.

22. The acquisition gives complete control of Modelo to ABI, and gives ABI full access to

competitively sensitive information about the sale of the Modelo brands in the United States –


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access that ABI does not currently enjoy. ABI presently has no day-to-day role in Modelo’s

United States business and is walled off from strategic discussions regarding Modelo sales in the

United States.

23. On June 28, 2012, ABI agreed to purchase the remaining equity interest from Modelo’s

owners, thereby obtaining full ownership and control of Modelo, for about $20.1 billion.

24. As noted above, in an effective acknowledgement that the acquisition of Modelo raises

significant competitive concerns, Defendants simultaneously entered into another transaction in

an attempt to “remedy” the competitive harm caused by ABI’s acquisition of the remainder of

Modelo: ABI has agreed to sell Modelo’s existing 50% interest in Crown to Constellation, so

that Crown, previously a joint-venture between Modelo and Constellation, would become wholly

owned by Constellation. As part of this strategy, ABI and Constellation have negotiated a

supply agreement giving Constellation the exclusive right to import Modelo beer into the United

States for ten years. These transactions are contingent on the closing of ABI’s acquisition of

Modelo.

IV. THE RELEVANT MARKET

A. Description of the Product

25. “Beer” is comprised of a wide variety of brands of alcoholic beverages usually made

from a malted cereal grain, flavored with hops, and brewed via a process of fermentation. Beer

is substantially differentiated from other alcoholic beverages by taste, quality, alcohol content,

image, and price.

26. In addition to brewing, beer producers typically also sell, market, and develop multiple

brands. Marketing and brand building take various forms including sports sponsorships, print

advertising, national television campaigns, and increasingly, online marketing. For example,


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Modelo has recently invested in “more national advertising [and] more national sports” in order

to “build the equity of [its] brands.”

27. Most brewers use distributors to merchandise, sell, and deliver beer to retailers. Those

end accounts are primarily grocery stores, large retailers such as Target and Walmart, and

convenience stores, liquor stores, restaurants, and bars which, in turn, sell beer to the consumer.

Beer brewed in foreign countries may be sold to an importer, which then arranges for distribution

to retailers.

28. ABI groups beer into four segments: sub-premium, premium, premium plus, and high-

end. The sub-premium segment, also referred to as the value segment, generally consists of lager

beers, such as Natural and Keystone branded beer, and some ales and malt liquors, which are

priced lower than premium beers, made from less expensive ingredients and are generally

perceived as being of lower quality than premium beers. The premium segment generally

consists of medium-priced American lager beers, such as ABI’s Budweiser, and the Miller and

Coors brand families, including the “light” varieties. The premium plus segment consists largely

of American beers that are priced somewhat higher than premium beers, made from more

expensive ingredients and are generally perceived to be of superior quality. Examples of beers in

the premium plus category include Bud Light Lime, Bud Light Platinum, Bud Light Lime-a-Rita

and Michelob Ultra.

29. The high-end category includes craft beers, which are often produced in small-scale

breweries, and imported beers. High-end beers sell at a wide variety of price points, most of

which are higher than premium and premium plus beers. The high-end segment includes craft

beers such as Dogfish Head, Flying Dog, and also imported beers, the best selling of which is

Modelo’s Corona. ABI also owns high-end beers including Stella Artois and Goose Island.


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Brewers with a broad portfolio of brands, such as ABI, seek to maintain “price gaps” between

each segment. For example, premium beer is priced above sub-premium beer, but below

premium plus beer.

30. Beers compete with one another across segments. Indeed, ABI and Modelo brands are in

regular competition with one another. For example, Modelo, acting through Crown in the United

States, usually selects “[d]omestic premium” beer, namely, ABI’s Bud Light, as its benchmark

for its own brands’ pricing.

B. Relevant Product Market

31. Beer is a relevant product market and line of commerce under Section 7 of the Clayton

Act. Other alcoholic beverages, such as wine and distilled spirits, are not sufficiently

substitutable to discipline at least a small but significant and nontransitory increase in the price

of beer, and relatively few consumers would substantially reduce their beer purchases in the

event of such a price increase. Therefore, a hypothetical monopolist producer of beer likely

would increase its prices by at least a small but significant and non-transitory amount.

C. Relevant Geographic Market

32. The 26 local markets, defined by Metropolitan Statistical Areas (“MSAs”)2, identified in

Appendix A, are relevant geographic markets for antitrust purposes. Each of these local markets

currently benefits from head-to-head competition between ABI and Modelo, and in each the

acquisition would likely substantially lessen competition.

33. The relevant geographic markets for analyzing the effects of this acquisition are best

defined by the locations of the customers who purchase beer, rather than by the locations of

breweries. Brewers develop pricing and promotional strategies based on an assessment of local

2 As defined by the SymphonyIRI Group, a market research firm, whose data is commonly used by industry participants.


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demand for their beer, local competitive conditions, and local brand strength. Thus, the price for

a brand of beer can vary by local market.

34. Brewers are able to price differently in different locations, in part, because arbitrage

across local markets is unlikely to occur. Consumers buy beer near their homes and typically do

not travel to other areas to buy beer when prices rise. Also, distributors’ contracts with brewers

and their importers contain territorial limits and prohibit distributors from reselling beer outside

their territories. In addition, each state has different laws and regulations regarding beer

distribution and sales that would make arbitrage difficult.

35. Accordingly, a hypothetical monopolist of beer sold into each of the local markets

identified in Appendix A would likely increase its prices in that local market by at least a small

but significant and non-transitory amount.

36. Therefore, the MSAs identified in Appendix A are relevant geographic markets and

“sections of the country” within the meaning of Section 7 of the Clayton Act.

37. There is also competition between brewers on a national level that affects local markets

throughout the United States. Decisions about beer brewing, marketing, and brand building

typically take place on a national level. In addition, most beer advertising is on national

television, and brewers commonly compete for national retail accounts. General pricing strategy

also typically originates at a national level. A hypothetical monopolist of beer sold in the United

States would likely increase its prices by at least a small but significant and non-transitory

amount. Accordingly, the United States is a relevant geographic market under Section 7 of the

Clayton Act.


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V. ABI’S PROPOSED ACQUISITION IS LIKELY TO RESULT IN ANTICOMPETITIVE EFFECTS

A. The Relevant Markets are Highly Concentrated and the Merger Triggers a

Presumption of Illegality in Each Relevant Market

38. The relevant markets are highly concentrated and would become significantly more

concentrated as a result of the proposed acquisition.

39. ABI is the largest brewer of beer sold in the United States. MillerCoors is the second-

largest brewer of beer sold in the United States. MillerCoors owns the Miller and Coors brands

and also many smaller brands including Blue Moon and Keystone Light. Modelo is the third-

largest brewer of beer sold in the United States, with annual U.S. sales of $2.47 billion, 7%

market share nationally, and a market share that is nearly 20% in some local markets. Modelo

owns the Corona, Modelo, Pacifico, and Victoria brands. The remaining sales of beer in the U.S.

are divided among Heineken and fringe competitors, including many craft brewers, which the

Defendants characterize as being “fragmented . . . small player[s].”

40. Concentration in relevant markets is typically measured by the Herfindahl-Hirschman

Index (“HHI”). Market concentration is often one useful indicator of the level of competitive

vigor in a market and the likely competitive effects of a merger. The more concentrated a

market, and the more a transaction would increase concentration in a market, the more likely it is

that a transaction would result in a meaningful reduction in competition. Markets in which the

HHI is in excess of 2,500 points are considered highly concentrated.

41. The beer industry in the United States is highly concentrated and would become

substantially more so as a result of this acquisition. Market share estimates demonstrate that in

20 of the 26 local geographic markets identified in Appendix A, the post-acquisition HHI

exceeds 2,500 points, in one market is as high as 4,886 points, and there is an increase in the


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HHI3 of at least 472 points in each of those 20 markets. In six of the local geographic markets,

the post-merger HHI is at least 1,822, with an increase of the HHI of at least 387 points, and in

each of those six markets the parties combined market share is greater than 30%.

42. In the United States, the Defendants will have a combined market share of approximately

46% post-transaction. The post-transaction HHI of the United States beer market will be greater

than 2800, with an increase in the HHI of 566.

43. The market concentration measures, coupled with the significant increases in

concentration, described above, demonstrate that the acquisition is presumed to be

anticompetitive.

B. Beer Prices in the United States Today are Largely Determined by the Strategic Interactions of ABI, MillerCoors, and Modelo

1. ABI’s Price Leadership

44. ABI and MillerCoors typically announce annual price increases in late summer for

execution in early fall. The increases vary by region, but typically cover a broad range of beer

brands and packs. In most local markets, ABI is the market share leader and issues its price

announcement first, purposely making its price increases transparent to the market so its

competitors will get in line. In the past several years, MillerCoors has followed ABI’s price

increases to a significant degree.

45. The specifics of ABI’s pricing strategy are governed by its “Conduct Plan,” a strategic

plan for pricing in the United States that reads like a how-to manual for successful price

coordination. The goals of the Conduct Plan include: “yielding the highest level of followership

in the short-term” and “improving competitor conduct over the long-term.”

3 Even if these concentration measures are modified to reflect ABI’s current partial ownership of Modelo, the effective levels of concentration would still support a presumption of illegality.


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46. ABI’s Conduct Plan emphasizes the importance of being “Transparent – so competitors

can clearly see the plan;” “Simple – so competitors can understand the plan;” “Consistent – so

competitors can predict the plan;” and “Targeted – consider competition’s structure.” By

pursuing these goals, ABI seeks to “dictate consistent and transparent competitive response.” As

one ABI executive wrote, a “Front Line Driven Plan sends Clear Signal to Competition and Sets

up well for potential conduct plan response.” According to ABI, its Conduct Plan “increases the

probability of [ABI] sustaining a price increase.”

47. The proposed merger would likely increase the ability of ABI and the remaining beer

firms to coordinate by eliminating an independent Modelo – which has increasingly inhibited

ABI’s price leadership – from the market.

2. Modelo Has Constrained ABI’s Ability to Lead Prices Higher

48. In the past several years, Modelo, acting through Crown, has disrupted ABI’s pricing

strategy by declining to match many of the price increases that were led by ABI and frequently

joined by MillerCoors.

49. In or around 2008, Crown implemented its “Momentum Plan” with Modelo’s enthusiastic

support. The Momentum Plan is specifically designed to grow Modelo’s market share by

shrinking the price gaps between brands owned by Modelo and domestic premium brands. By

maintaining steady pricing while the prices of premium beer continues to rise, Modelo has

narrowed the price gap between its beers and ABI’s premium beers, encouraging consumers to

trade up to Modelo brands. These narrowed price gaps frustrate ABI and MillerCoors because

they result in Modelo gaining market share at their expense.

50. Under the Momentum Plan, Modelo brand prices essentially remained flat despite price

increases from ABI and other competitors, allowing Modelo brands to achieve their targeted


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price gaps to premium beers in various markets. After Modelo implemented its price gap

strategy, Modelo brands experienced market share growth.

51. Because of the Momentum Plan, prices on the Modelo brands have increased more

slowly than ABI has increased premium segment prices. Thus, as ABI has observed, in recent

years, the “gap between Premium and High End has been reducing . . . due to non [high-end]

increases.” Over the same time period, the high-end segment has been gaining market share at

the expense of ABI’s and MillerCoors’ premium domestic brands.

52. In internal strategy documents, ABI has repeatedly complained about pressure resulting

from price competition with the Modelo brands: “Recent price actions delivered expected Trade

up from Sub Premium, however it created additional share pressure from volume shifting to

High End where we under-index;” “Consumers switching to High End accelerated by price gap

compression;” “While relative Price to MC [MillerCoors] has remained stable the lack of Price

increase in Corona is increasing pressure in Premium.” An ABI presentation from November

2011 stated that ABI’s strategy was “Short-Term []: We must slow the volume trend of High

End Segment and cannot let the industry transform.” Owning the Modelo brands will enable

ABI to implement that strategy.

53. The competition that Modelo has created by not following ABI price increases has

constrained ABI’s ability to raise prices and forced ABI to become more competitive by offering

innovative brands and packages to limit its share losses and to attract customers.

54. Competition between the ABI and Modelo brands has become increasingly intense

throughout the country, particularly in areas with large Latino populations. As the country’s

Latino population is forecasted to grow over time, ABI anticipates even more rigorous


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competition with Modelo. Here are some examples of how the Modelo brands have disciplined

the pricing of the market leaders.

a. California

55. Modelo, acting through Crown, has not followed ABI-led price increases in local markets

in California. Because of the aggressive pricing of the Modelo brands, ABI’s Bud and Bud Light

brands have reported “[h]eavy share losses” to Modelo’s Corona and Modelo Especial.

56. Consumers in California markets have been the beneficiaries of Modelo’s aggressive

pricing. ABI rescinded a planned September 2010 price increase because of the share growth of

Modelo’s Corona brand. ABI also considered launching a new line, “Michelob Especial,” – a

Modelo brand is “Modelo Especial” – targeted at California’s Latino community. ABI

recognized that Corona’s strength in California meant that “innovation [is] required.”

Nonetheless, Modelo continued “eating [Budweiser’s] lunch” in California to the point where

ABI’s Vice President of Sales observed that “California is a burning platform” for ABI, which

was “losing share” because of “price compression” between ABI and Corona.

57. In 2012, ABI’s concern about losing market share to Modelo in California caused a full-

blown price war. ABI implemented “aggressive price reductions . . .” that were seen as

“specifically targeting Corona and Modelo.” These aggressive discounts appear to have been

taken in support of ABI’s expressed desire to discipline Modelo’s aggressive pricing with the

ultimate goal of “driv[ing] them to go up” in price. Both MillerCoors and Modelo followed

ABI’s price decrease, and ABI responded by dropping its price even further to stay competitive.

b. Texas

58. Competition between the ABI and Modelo brands in local markets in Texas is also

intense. Beginning in or about 2010, some Modelo brands began to be priced competitively with


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ABI’s Bud Light, the leading domestic brand throughout the state. Modelo brands also benefited

from price promotions and regional advertising. By 2011, Modelo had begun gaining market

share at ABI’s expense. ABI recognized Modelo’s aggressive price strategy as an issue

contributing to its market share loss.

59. Ultimately, aggressive pricing on some Modelo brands forced ABI to lower its prices in

local Texas markets, and adjust its marketing strategy to better respond to competition from the

Modelo brands. According to an ABI Regional Vice President of Sales, ABI set “pricing,

packaging and retail activity targets to address [Modelo’s] Especial” brand. In both Houston and

San Antonio, ABI also lowered the price of its Bud Light Lime brand to match Modelo Especial

price moves.

c. New York City

60. In the summer of 2011, Modelo, acting through Crown, sought to narrow the gap in price

between its brands and those of domestic premiums, including the ABI brands in New York

City. ABI became concerned that “price compression on Premiums by imports” would cause

premium domestic customers to trade up to the import segment. ABI’s Vice President of Sales

observed that the price moves on Modelo’s Corona brand, and corresponding reductions by

MillerCoors and Heineken, meant that ABI would “need to respond in some fashion,” and that

its planned price increase was “in jeopardy.” ABI ultimately chose to respond by delaying a

planned price increase to “limit the impact of price compression on our premiums as a result of

the Corona . . . deeper discount.”

C. The Elimination of Modelo Would Likely Result in Higher Coordinated Pricing by ABI and MillerCoors

61. Competition spurred by Modelo has benefitted consumers through lower beer prices and

increased innovation. It has also thwarted ABI’s vision of leading industry prices upward with


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MillerCoors and others following. As one ABI executive stated in June 2011, “[t]he impact of

Crown Imports not increasing price has a significant influence on our volume and share. The

case could be made that Crown’s lack of increases has a bigger influence on our elasticity than

MillerCoors does.” ABI’s acquisition of full ownership and control of Modelo’s brands and

brewing assets will facilitate future pricing coordination.

D. The Loss of Head-to-Head Competition Between ABI and Modelo Would Likely Result in Higher Prices on ABI-Owned Brands

62. ABI is intent on moderating price competition. As it has explained internally: “We must

defend from value-destroying pricing by: [1] Ensuring competition does not believe they can

take share through pricing[,] [and] [2] Building discipline in our teams to prevent unintended

initiation or acceleration of value-destroying actions.” ABI documents show that it is

increasingly worried about the threat of high-end brands, such as Modelo’s, constraining its

ability to increase premium and sub-premium pricing. In general, ABI, as the price leader,

would prefer a market not characterized by aggressive pricing actions to take share because

“[t]aking market share this way is unsustainable and results in lower total industry profitability

which damages all players long-term.”

63. ABI would have strong incentives to raise the prices of its beers were it to acquire

Modelo. First, lifting the price of Modelo beers would allow ABI to further increase the prices

of its existing brands across all beer segments. Second, as the market leader in the premium and

premium-plus segments, and as a brewer with an approximate overall national share of

approximately 46% of beer sales post-acquisition, coupled with its newly expanded portfolio of

brands, ABI stands to recapture a significant portion of any sales lost due to such a price

increase, because a significant percentage of those lost sales will go to other ABI-owned brands.


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64. Therefore, ABI likely would unilaterally raise prices on the brands of beer that it owns as

a result of the acquisition.

E. The Loss of Head-to-Head Competition Between ABI and Modelo Will Harm Consumers Through Reduced New Product Innovation and Product Variety

65. Modelo’s growth in the United States has repeatedly spurred product innovation by ABI.

In 2011, ABI decided to “Target Mexican imports” and began planning three related ways of

doing so. First, ABI would acquire the U.S. sales rights to Presidente beer, the number one beer

in Central America, and greatly expand Presidente’s distribution in the United States. Second,

ABI would acquire a “Southern US or Mexican craft brand,” and use it to compete against

Mexican imports. Finally, ABI would license trademarks to another tropical-style beer, in a

project that the responsible ABI manager described as a “Corona killer.”

66. ABI’s Bud Light Lime, launched in 2008, was also targeted at Corona (commonly served

with a slice of lime), going so far as to mimic Corona’s distinctive clear bottle. As one Modelo

executive noted after watching a commercial for Bud Light Lime, the product was “invading

aggressively and directly the Corona territory.” Another executive commented that the

commercial itself was “[v]ery similar” to one Modelo, through Crown, was developing at the

same time.

67. The proposed acquisition’s harmful effect on product innovation is already evident. If

ABI were to acquire Modelo and enter into the supply agreement with Constellation, ABI would

be forbidden from launching a “Mexican-style Beer” in the United States. Further, ABI would

no longer have the same incentives to introduce new brands to take market share from the

Modelo brands.


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F. Summary of Competitive Harm from ABI’s Acquisition of the Remainder of Modelo

68. The significant increase in market concentration that the proposed acquisition would

produce in the relevant markets, combined with the loss of head-to-head competition between

ABI and Modelo, is likely to result in unilateral price increases by ABI and to facilitate

coordinated pricing between ABI and remaining market participants.

VI. ABSENCE OF COUNTERVAILING FACTORS

69. New entry and expansion by existing competitors are unlikely to prevent or remedy the

acquisition’s likely anticompetitive effects. Barriers to entry and expansion within each of these

harmed markets include: (i) the substantial time and expense required to build a brand

reputation; (ii) the substantial sunk costs for promotional and advertising activity needed to

secure the distribution and placement of a new entrant’s beer products in retail outlets; (iii) the

difficulty of securing shelf-space in retail outlets; (iv) the time and cost of building new

breweries and other facilities; and (v) the time and cost of developing a network of beer

distributors and delivery routes.

70. Although ABI asserts that the acquisition would produce efficiencies, it cannot

demonstrate acquisition-specific and cognizable efficiencies that would be passed-through to

U.S. consumers, of sufficient size to offset the acquisition’s significant anticompetitive effects.

VII. DEFENDANTS’ PROFFERED “REMEDY” DOES NOT PREVENT THE ANTICOMPETITIVE EFFECT OF ABI’S ACQUISITION OF MODELO

71. In light of the high market concentration, and substantial likelihood of anticompetitive

effects, ABI’s acquisition of the remainder of Modelo is illegal. Defendants thus evidently

structured their transactions with a purported “remedy” in mind: the sale of Modelo’s interest in

Crown to Constellation, coupled with a supply agreement that gives Constellation the right to


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import Modelo beer into the United States. This proposal is inadequate to remedy Defendants’

violation of Section 7 of the Clayton Act.

A. Constellation Has Not Shown Modelo and Crown’s Past Willingness to Resist ABI’s “Leader-Follower” Industry Plan

72. Constellation has not shown Crown and Modelo’s past willingness to thwart ABI’s price

leadership. While Modelo supported narrowing the gap between the prices of its brands and

those of ABI premium brands, Constellation’s executives have sought to follow ABI’s pricing

lead. In August 2011, Constellation’s Managing Director wrote to Crown’s CEO: “Since ABI

has already announced an October general price increase I was wondering if you are considering

price increases for the Modelo portfolio? . . . . From a positioning and image perspective I

believe it would be a mistake to allow the gaps to be narrowed … I think ABI’s announcement

gives you the opportunity to increase profitability without having to sacrifice significant

volume.” Similarly, in December of 2011, Constellation’s CFO wrote to his counterpart at

Crown that he thought price increases on the Modelo brands were viable “if domestics [i.e. Bud

and Bud Light] keep going up” but worried that “Modelo gets a vote as well.” And in June of

2012, a Crown executive stated that Constellation’s plan for annual price increases “put at risk

the relative success” of the Momentum Plan.

73. Crown executives have recognized the differing incentives, as it relates to pricing, of

their two owners. As one Crown executive observed in a March 2011 email, “Modelo has a

higher interest in building volume so that they can cover manufacturing costs, gain

manufacturing profits and build share as the brand owners.” Constellation, however, “is

interested primarily in the financial return on a short-term or at the most on a mid-term basis.”


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74. Post-transaction, Constellation would no longer be so constrained. Even if Crown’s own

executives wanted to continue an aggressive pricing strategy, they would be required to answer

to Crown’s new sole owner – Constellation.

75. Crown executives were concerned about what would happen if Constellation gained

complete control of Crown. Crown’s CEO wrote to Constellation’s CEO after Defendants’

proposed “remedy” was announced: “the Crown team [] is extremely anxious about this change

in ownership. This is in no small part the result of Constellation’s actions over the term of the

joint venture to limit investment in the business in the areas of manpower and marketing.”

Constellation’s CEO responded internally: “[Q]uite something. I see a management issue

brewing.” In another email, Crown’s CEO wrote to his employees that Constellation had been

“consistently non supportive of the business through Crown’s history . . . seeking to drive profits

at all costs.”

76. Crown’s fears appear well-grounded. In 2010, Modelo sued Constellation for breach of

fiduciary duty, after Constellation had refused to invest in marketing the Modelo brands. In its

Complaint, Modelo alleged “Constellation [] knew that [Crown] management’s plan was in

Crown’s best interests, but they blocked it anyway in an effort to secure unwarranted benefits for

Constellation.”

77. Post-acquisition, Constellation would not need to ask Modelo for permission to follow

ABI’s price-leadership. Instead, Constellation would be free to follow ABI’s lead. Moreover,

ABI and Constellation will have every incentive to act together on pricing because of the vast

profits each would stand to make if beer prices were to increase.

78. The contingent supply relationship between ABI and Constellation would also facilitate

joint pricing between the two companies.

Documents

Unit 10: ABI/Grupo Modelo Class 17 - appliedantitrust.comappliedantitrust.com/.../unit10ma_abi_grupo_modelo_materials.pdf · holding company for Grupo Modelo’s operating subsidiaries,